8. Use the High Low Method to calculate Variable Labor Hour per unit of Output a
ID: 1250989 • Letter: 8
Question
8. Use the High Low Method to calculate Variable Labor Hour per unit of Output and
Fixed Labor Hour per Pay Period.
Period Output in Units Hours Worked
1 360 140
2 290 130
3 410 160
4 340 140
5 210 100
6 400 160
Explanation / Answer
High-low method
Definition
A cost-accounting technique that uses the highest and lowest total cost as a basis for estimating the fixed and variable elements of a mixed cost
Period Output in Units Hours Worked
1 360 140
2 290 130
3 410 160
4 340 140
5 210 100
6 400 160
1. the first step is to determine the highest and lowest representative in this case it is the period of 3 rd(highest) whish has 410 cost and 160 labor hours, and 5th period (lowest) 210 cost and 100 labor hours. (look in their cost in determing the highest and lowest.
2. then get the difference of the two representative which look like these.( 410-210 = 200) and (160 - 100 = 60)
3. then divide the difference in cost from the difference in labor hours. so 200 / 60
3.33 per direct labor hours which represent the variable cost per unit.
4. multiply the variable rate per unit to the highest and lowest labor hour representative.
160 x $3.30 = 528
100 x $3.30 = 330 (this represent the total variable cost)
the total cost/the mixed cost need to split into variable and fixed, since we now know the variable all we have to do is look for the fixed cost.
since TOTAL COST = variable + fixed
therefore TOTAL COST - variable = fixed
5. TOTAL COST Of 410 - 528(variable) = -118 (highest representative)
TOTAL COST of 210 - 330(variable) = -120,(lowest representative)
you will notice that the fixed cost in the highest and lowest representative are diffrence between is -2, it is so because fixed cost is constant regardless of production.
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